In finance, return on investment (ROI), also called rate of return (ROR), profit rate, or simply return, is the ratio between the amount of money gained (or lost) as a result of an investment and the amount of money invested.

There are three possible formulations of rate of return: effective return; required return; and projected return.

• The effective return serves as a measure for evaluating the performance of an investment, assessed after the fact.
• The projected return serves as an ex-ante measure of an investment's performance; it is its implicit or internal rate of return, the rate that equates the investment's value to its price or cost.
• The required rate of return is what allows you to determine the value of an investment.

In fact, the value of an investment is the present equivalent of its future cash flows, which are converted into present (or discounted) equivalents at the required rate of return.

It is based on the idea that any investment should provide a rate of return equal to a risk-free rate plus a risk premium that is a function of the degree of uncertainty affecting the investment's future cash flows.

The projected rate of return is a function of the price (or cost) of the investment and the future cash flows attributable to the investment. Since these cash flows are uncertain, the projected rate of return is also uncertain, even appearing as a random variable.

Herein lies your risk, which will have to be measured in order to be taken into account when estimating the risk premiums to be included in the required rates of return.

The amount of money earned or lost can be referred to as interest, profits or losses, gains or losses, or even net income or net losses. The money invested can be referred to as assets, capital, principal, or basic investment cost.

ROI is usually expressed as a percentage.

The success of a company's organizational strategies depends on the proper management of projects, programs, and portfolios.

In this sense, financial responsibility is constantly increasing, and its measurement is mandatory. Although today the use of this analytical is widespread across all types of investments, the calculation of ROI is not a recent "trend." As early as 1920, the Harvard Business Review referred to ROI as the essential analytical measure for understanding the value of capital investment returns.

Your knowledge has a significant impact not only within the organization managing the investment process, but also among potential investors.

Beyond the internal and external "selling" of the project, it is essential for its monitoring to clearly demonstrate its impact on the business in relation to pre-defined goals.